Fert units object to RILs K-G gas sales draft

Written by Sanjay Jog | Mumbai | Updated: Mar 6 2009, 04:45am hrs
Fertiliser companies, which are expected to get 15 million metric standard cubic metres per day (mmscmd) of gas from Reliance Industries (RIL) K-G D6 basin, have taken a series of objections against various provisions in the draft gas sales and purchase agreement (GSPA) forwarded by RIL.

Fertiliser companies have objected to the provisions relating to the take or pay, no supply or pay discount for supply of gas of poor quality. They have also cited operational difficulties in the procurement of gas.

The prospective buyers which have received the GSPA from RIL include Rastriya Chemicals and Fertilisers (RCF), Nagarjuna Chemicals and Fertilisers, Iffco, KRIBHCO, Chambal Fertilisers, Tata Chemicals, Oswal Fertilisers and Indo-Gulf Fertilisers, among others. Factories owned by these fertiliser firms are spread across Uttar Pradesh, Madhya Pradesh, Gujarat, Maharashtra, and Andhra Pradesh. In AP, Maharashtra and Gujarat, the gas will be transported by the $4-billion East-West pipeline which has been set up by Reliance Gas Transportation Infrastructure (RGTIL), a Reliance Group company. Fertiliser plants in UP and MP will get gas from GAILs HBJ pipeline network.

Sources told FE that as per the draft agreement fertiliser companies are expected to pay within the stipulated time even though they do not draw gas. However, in case of RILs inability to supply gas, the company is not expected to pay compensation to the fertiliser companies. Under the take or pay clause, the fertiliser company will have to draw 90% of the gas, if it fails to do so it is mandatory on the company to make the necessary payment. However, the situation is quite different when RIL fails to supply the necessary quantity as it has not made any commitment to compensate fertiliser company. These provisions are quite unilateral and they need to be amended. A large number of fertiliser companies have sent out their suggestions and objections and expect RILs response. Sources made it clear that they will sign gas supply agreement only after they receive RILs reply.

As far as providing discount in case of supply of poor quality gas or below the parameters, fertiliser industry has cited provisions in the similar international agreement whereby the gas supplier is supposed to pay discount to the purchaser. If the gas is inferior with higher quantity of carbondioxide, nitrogen, RIL needs to some discount price. However, the draft agreement is silent on this aspect, sources noted. Moreover, fertiliser companies want that gas be supplied from one source to overcome operational and supply hurdles.